Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Golden Opportunity For Commodities?

Dec 16, 2011

Market Watch w/Alan Brugler

December 16, 2011

Golden Opportunity For Commodities?

It was not a good week to be a gold bug. The bad news was still flying in Europe, and the euro dropped below $1.30 for a while. In some recent weeks, euro weakness had been accompanied by gold buying. Gold, however, was down 7% for the week, trumped by a strong US dollar index, and we suspect some yearend profit taking following a huge rally. It started the year at $1422 and had traded as high as $1920.70 in September. So why is this a golden opportunity for commodities? Most of them are technically in oversold conditions. If traders begin unwinding shorts in things like cotton, wheat or soybeans ahead of year end, the proverbial Santa Claus rally could still develop. Corn might be a harder sell, since prices are still nearly $2 above where they were last year at this time, but if wheat rallied corn would likely bounce as well.

Corn lost 11 cents per bushel for the week, with export sales still poor and open interest declining in "get me out" trade across a wide swath of commodities. Weekly export sales were 504,700 MT for 2011/12 delivery and 1,200 for 2012/13 delivery. Total export commitments are 57% of the USDA forecast for the year, actually above the 52% average. Unshipped sales are 4% smaller than the book last year at this time. The CFTC report on Friday showed the large spec funds adding to their net long position in the reporting week ending December 13. Some RGDS producers (Brazil) are talking about having to rip up poor corn stands and trying to get in some late soybeans.

The wheat complex had losses at all three exchanges again this week, with KC down the most at 3.3%. US weekly export sales were 318,400 for 2011/12 and shipments were 539,300, up 25% from the previous week and up 55% from the four week average. Cumulative sales are still down however, confirmed when USDA cut projected exports another 50 million bushels on the 9th. Global prices appear to be evening out, with Egypt buying French wheat in its most recent tender. US SRW would be competitive if it weren’t for larger freight costs.

Commodity

Weekly

Weekly

Month

11/25/11

12/02/11

12/09/11

12/16/11

Change

% Change

Mar

Corn

5.9

5.9525

5.9425

5.83

0.1125

1.89%

Mar

CBOT Wheat

5.89

6.255

5.96

5.8375

0.1225

2.06%

Mar

KCBT Wheat

6.54

6.815

6.615

6.395

0.2200

3.33%

Mar

MGEX Wheat

8.075

8.445

8.2725

8.1125

0.1600

1.93%

Jan

Soybeans

11.065

11.3575

11.07

11.3

0.2300

2.08%

Jan

Soybean Meal

283

288.3

276.9

290.3

13.4000

4.84%

Jan

Soybean Oil

48.44

50.25

49.6

49.55

0.0500

0.10%

Dec

Live Cattle

121.1

121.9

118.3

118.15

0.1500

0.13%

Jan

Feeder Cattle

144.625

147.075

142.1

143.05

0.9500

0.67%

Feb

Lean Hogs

91.8

89.225

86.425

83.15

3.2750

3.79%

Mar

Cotton

93.27

91.84

90.43

86.07

4.3600

4.82%

Mar

Oats

2.87

3.15

3.02

3.0125

0.0075

0.25%

Jan

Rice

14.235

14.455

14.01

13.685

0.3250

2.32%

Soybeans rallied 2.08% for the week, with soybean meal jumping 4.8% on the continued slow crush pace and indications that prices below $280 had attracted more use in feed rations. Soy oil was a drag on product value, down 0.1%. Weekly export sales were still anemic at 468 thousand tonnes, but export shipments were over 1 MMT.South American weather is now on everyone’s radar, with dry spots developing and high temperatures stressing both corn and beans. The large managed money traders are rarely net short soybeans for long, and they unwound 7,035 of those shorts (futures & options) in the CFTC reporting week ending December 13.

Cotton was down 4.8% this past week, taking our prize for Biggest Loser. Weekly export sales through Dec 1 were net positive, unlike last week. US Weekly Export Sales through December 8 were a combined 45,700 RB for both marketing years with a reduction for 2012/13 of 10,100 RB from Thailand. Net American Pima sales were 5,600 RB. The problem is with global demand and the potential for further slowing as austerity measures are implemented in Europe and potentially nudge the eurozone back into recession territory. The lower prices are causing reductions in planned 2012 acreage, with two surveys both showing 2012 Chinese plantings could be down 9%.

Lean Hog futures dropped a huge 3.79%, with most of that loss coming on Friday. The pork cutout was actually up 0.9% on a Thursday/Thursday basis. Weekly pork production, however, was up an estimate 0.5%, and cumulative production YTD is now 1.2% larger than last year. It is a good thing pork exports have been so strong, to absorb the excess. Estimated carcass weights were up 2# from last year’s actual average of 207 pounds.

Cattle futures slipped 15 cents per hundredweight for the week, a modest adjustment after the $3.60 slide a week ago. Cash cattle trade was late to develop, with a few trading in NE a dollar below last week. Weekly export sales were phenomenal for both 2011 and 2012 delivery. Wholesale prices were up 0.5% on a Thursday/Thursday basis, aided by a drop of about 4 million pounds in beef production for the week. YTD production is now down 0.5%. On Friday night, USDA put the number of Cattle on Feed December 1 at 12.081 million head, up 4% from last December and the largest monthly total since January 2008. Placements were larger than expected at 104.1%, offset by marketings at 99.8% of last year and a 65% jump year over year in "other disappearance". The report is slightly bearish because the numbers are on the high side of expectations, but much of the downward bias should have been absorbed by the price drop coming into the report and the continued strong export sales. Those sales do tend to slow over the holidays.

Call in consulting service with Alan is available for a limited number of new customers in our Ag Marketing Professional Premium package. Call our office for details at 402-289-2330.

Market Watch: We start to get into holiday mode this week, although there is still a full trading calendar. The main USDA reports are the Cold Storage report on Thursday and the Hogs & Pigs report scheduled for Friday afternoon. There will also be continued interest in the export sales data, both the Inspections report on Monday and the weekly Sales report on Thursday morning. Friday will mark the expiration of the January grain options, and be followed by the Christmas weekend. The markets will be closed on Monday the 26th.

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